[ Update: It's come to my attention that you do get a deduction in NJ for a 401k contribution.
That's not how I remember it from my pay stubs and W-2 from long ago. But I will stand corrected. ]
In a way you are taxed twice because you get no deduction in NJ for a 401k contribution.
The NJ amount on your W-2 is income and you pay income tax.
The amount on your 1099R is a distribution. You took money out of your 401k and you have to pay tax on that.
If you take from your 401k before age 59 1/2, then there is an additional federal penalty of 10% on your federal tax return. Only in 2020 can you avoid that if you claim to be affected by COVID.
The general rule and the three-year rule are for pensions. A 401k is not a pension.
Once you reach age 62 the NJ pension exclusion will help you avoid double taxation, if you qualify.
[ Update: It's come to my attention that you do get a deduction in NJ for a 401k contribution.
That's not how I remember it from my pay stubs and W-2 from long ago. But I will stand corrected. ]
